WASHINGTON (Reuters) - A "soft Brexit" incorporating trade deals would be the best way to minimise damage to Britain and the European Union, German Finance Minister Wolfgang Schaeuble said on Thursday.

Schaeuble, in Washington for a meetings of the International Monetary Fund, also praised the pro-European stance of French President Emmanuel Macron and said multilateralism was a prerequisite for world peace.

He said he hoped British finance minister Philip Hammond and other backers of a so-called "soft Brexit" prevailed in negotiations over the terms of Britain's exit from the EU.

The talks have stalled on issues like the bill Britain must pay to leave and the future of Northern Ireland's land border with the EU.

Hammond, considered one of the most pro-EU members of Prime Minister Theresa May's cabinet, on Wednesday warned that the lack of direction to talks was hurting business investment and consumer confidence.

A "soft Brexit" - in which Britain remains in or close to the EU’s single market and keeps many of the trade and business benefits it had as member - would be preferable, Schaeuble said.

"That is the best way to keep the damage as minimal as possible," he said during a event on the sidelines of the IMF meeting.

Schaeuble said he was optimistic that Chancellor Angela Merkel and her conservatives would be able to forge a new coalition government before Christmas, that the new team would stick to a stable economic and pro-European course.

Merkel is trying to put together a three-way coalition with the pro-business Free Democrats and the environmentalists Greens. The parties must still resolve differences over immigration, taxes and energy.

Schaeuble is due to become president of the lower house of the German parliament and step down as finance minister, freeing the post for someone from another party.

The job is likely to go to a member of the FDP, but a key ally of Merkel on Thursday said he would like to keep the spot for the conservatives to preserve Schaeuble's insistence on a balanced budget.